Gamble Away the Risk

Bankruptcy is a back-stop for risk management errors. Last week I attended a conference sponsored by the Center for Health, Economic, and Family Security at Berkeley Law on the appropriate level of risk that government, private industry, and individuals should bear for a variety of risks--job loss, illness, changes in family needs, and others. Repeat CreditSlips guestblogger Christian Weller and Amy Helburn presented a paper on family debt and assets that highlighted the $15 trillion in lost household wealth in the 18th month period 6/07 to 12/08. The paper's key point is that our savings rate is too low. That is a pretty easy case to build, and as Weller and Helburn skillfully acknowledge, the trick is figuring how to stimulate savings. Anne Stuhldreher from the New America Foundation had lots of interesting ideas. The most fun one capitalized on the penchant for gambling. She reported that the average American spends $500 in scratch/instant lottery tickets per year. A pilot program in Michigan, Save to Win, gives consumers a chance at a $100,000 grand prize and monthly cash prizes. Each $25 deposit into the savings account is an entry to this lottery for savers. The highest take-up, as well as those depositing the highest percentage of their income, are residents of central Detroit. The program is proving particularly adept at motivating savings even among households with low-incomes or substantial risk of financial hardship. While only one lucky consumer will get rich with the grand prize, all these families reducing their risk of losing in the game of chance that is American household economic security by bolstering their savings.